Trading Bloc

Trading Bloc. A trading bloc is a group of countries that allow free trade within their bloc but may impose tariffs on countries outside the bloc.

There are three types of trading blocs:

1) Free Trade Area. A free trade area is one in which all trade barriers are removed between member countries. Each member can impose its own restrictions on goods from outside the free trade area. A free trade area exists between the US, Canada and Mexico, this is called the North Atlantic Free Trade Agreement (NAFTA). Another free trade area exists between Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, this is called the Association of South East Asian Nations (ASEAN).

2) Customs Union. A customs union is where there is free trade within the trading bloc and a common external tariff on goods coming from outside the bloc.

3) Monetary Union. A monetary union is a customs union with a common currency between members. A central bank must control the single currency, monetary and exchange rate policy for all members. An example is the European Monetary Union (EMU).